Easy credit 'another form of corruption'

As lenders got a lashing from a cabinet minister yesterday, ratings agency Moody's warned of the dangers of unsecured lending for South African consumers.

Trevor Manuel, Minister in the Presidency responsible for the National Planning Commission, called unsecured lending, microlending and payroll lending "another form of corruption".

Both the government and investors have become increasingly concerned about the rapid rise in unsecured loans in recent months.

"Unsecured lending in the South African consumer credit market has shown a dramatic 389% increase, from a total of R40.9-billion in December 2007 to a total of R159.3-billion in December 2012," Moody's Investor Service said in a report released yesterday.

African Bank, the largest unsecured lender in the country, saw its shares sold off after it announced that it would taper off the granting of new loans.

A report from the National Credit Regulator last month showed that 9.5million South Africans have impaired credit records, meaning they are at least two months behind on payments.

Moody's views South African consumers as particularly exposed: "The recent dramatic rise in unsecured consumer borrowing will make consumers more vulnerable to economic shocks and has, therefore, contributed to the current negative outlook for consumer credit."

Manuel, speaking at a conference of the SA Human Rights Commission in Sandton, said wage demands in the mining sector were driven by high debt levels.

Easy credit, he said, had had a severe social and economic impact.

Making reference to last year's Marikana tragedy, Manuel said that lending did not receive the same attention as "other forms of corruption".

Most of the miners at Marikana were deep in debt and took home very little of what they were paid as they had garnishee orders against their salaries to pay back debt, he said.

It was like corruption when a worker did "not quite [understand] what the relationship is between the loan [he pays back] and the wage he earns".

The credit provider meanwhile gets his due and the middlemen, such as lawyers and debt collectors, also get their part.

"The tragedy is that the bulk of this borrowed money goes into consumption," Manuel said.

According to Moody's, a lot of the borrowing goes into servicing other debt.

"It is highly likely that distressed borrowing needs have, to some extent, driven the uptick in unsecured lending," said Moody's.